Financial groups eye Africa’s growing middle class

A complete focus on Sub-Saharan Africa by international and regional institutions continues to bear witness to the rising demand from a burgeoning middle class in Africa. In the latest news headlines, Reuters reports that South African banking group FirstRand may soon conclude a deal for a strategic investment in Nigeria’s Sterling Bank Plc.

Sterling Bank is not one of the banks bailed-out in 2009 by the Central Bank of Nigeria as it passed the test on the three parameters – liquidity, capital adequacy and corporate governance. Apart from FirstRand, other deals are looming in Nigeria’s banking sector as new investors seek to recapitalise the rescued banks, just as the Asset Management Corporation of Nigeria (AMCON) has set a June timeframe to resolve the country’s banking crisis.

FirstRand has also announced that it will begin operations in Tanzania by mid-year, widening its presence on the African continent. The unit has acquired a banking licence in the eastern African nation, where it ultimately aims to be a “major player” in the country.

A number of financial groups have made strides to tap into the fast growing economies of Sub-Saharan Africa. This includes Pan-African banking group, Ecobank Transnational (asset base of over US$9 billion), which snapped a controlling shareholding in Premier Finance Group Limited (Zimbabwe) in a transaction worth about $10 million. Ecobank has a presence in 30 African countries and is listed on stock exchanges in Lagos, Accra and the BRVM. It is understood that Ecobank Zimbabwe will be remodelled as a Southern African hub. The bank is expected to list on the Zimbabwe Stock Exchange so as to meet the country’s indigenisation regulations that allow locals to hold 51% stake in foreign firms.

According to consultants Bain & Company, Africa’s financial services industry may continue to grow at an average annual rate of 15% to 2020, outpacing gross domestic product growth. Retail banking is expected to grow faster than corporate banking, and is likely to make up nearly 40% of the banking revenue by 2020, the study predicted. Traditionally, a lot of interest amongst those investing in Africa had been centred on resources such as mineral and agricultural commodities. However, there appears to be a gradual shift as financial services, telecoms and consumer sectors are also exhibiting investment cases.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.